ECON 340 EXAM 1 QUESTIONS WITH VERIFIED
ANSWERS
Law of demand - answers - as the price of a good increases, the quantity demanded
decreases, holding all else constant
Slope of a demand curve - answers - negative slope
Income effect - answers - as the price of a good increases, people's purchasing power
will decrease, and the quantity demanded decreases for normal goods
Substitution effect - answers - as the price of a good increases, people will substitute to
other goods
Normal goods - answers - increase in income leads to an increase in demand
Inferior goods - answers - increase in income leads to a decrease in demand
Shift variables of a demand curve - answers - income, prices of related goods,
increased number of consumers, future price expectations, taxes or subsidies, tastes or
preferences
Prices of goods if x and y are substitutes - answers - as the price of x increases, the
demand for y increases
Prices of goods if x and y are complements - answers - as the price of x increases, the
demand for y decreases
Law of suply - answers - as production increases, costs increase at an increasing rate,
so firms must receive higher prices to increase quantity supplied
Supply curve slope - answers - these curves have a positive slope
Shift variables for supply curves - answers - input prices, technological improvements,
increase in number of firms, taxes and subsidies
Input prices on supply curves - answers - prices decrease as supply increases
If supply > demand - answers - surplus exists, prices decrease
If supply < demand - answers - shortages exist, prices increase
What is meant by a stable equilibrium - answers -
ANSWERS
Law of demand - answers - as the price of a good increases, the quantity demanded
decreases, holding all else constant
Slope of a demand curve - answers - negative slope
Income effect - answers - as the price of a good increases, people's purchasing power
will decrease, and the quantity demanded decreases for normal goods
Substitution effect - answers - as the price of a good increases, people will substitute to
other goods
Normal goods - answers - increase in income leads to an increase in demand
Inferior goods - answers - increase in income leads to a decrease in demand
Shift variables of a demand curve - answers - income, prices of related goods,
increased number of consumers, future price expectations, taxes or subsidies, tastes or
preferences
Prices of goods if x and y are substitutes - answers - as the price of x increases, the
demand for y increases
Prices of goods if x and y are complements - answers - as the price of x increases, the
demand for y decreases
Law of suply - answers - as production increases, costs increase at an increasing rate,
so firms must receive higher prices to increase quantity supplied
Supply curve slope - answers - these curves have a positive slope
Shift variables for supply curves - answers - input prices, technological improvements,
increase in number of firms, taxes and subsidies
Input prices on supply curves - answers - prices decrease as supply increases
If supply > demand - answers - surplus exists, prices decrease
If supply < demand - answers - shortages exist, prices increase
What is meant by a stable equilibrium - answers -
